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The business economist at work: government economists working on the national accounts.

WHEN THE latest gross domestic product (GDP) or personal income estimates flash across the news wires, few stop to ask, "Who prepared the estimates and how did they do it?" This article presents a picture of the economists who work on the national accounts. It begins by describing the agency that employs them, focusing on one division, and within that division, on one branch. It then concentrates on how one component of the national income and product accounts -- wages and salaries -- is estimated. Finally, it discusses the internal review process and the public release of the estimates.

THE BUREAU OF ECONOMIC ANALYSIS

The Bureau of Economic Analysis (BEA) is an agency of the U.S. Department of Commerce. We play a major role in the measurement and analysis of U.S. economic activity through our work on the economic accounts. These accounts -- national, regional, and international -- supplemented by the cyclical indicators, provide basic information on such key issues as economic growth, inflation, regional development, and the nation's role in the world economy.

BEA consists of eleven divisions, organized under the Office of the Director, which includes three Associate Directors (National Economic Accounts, International Economics, and Regional Economics). There are about 460 employees, two-thirds of whom are economists, statisticians, accountants, or related professionals. Although the subject matter varies across divisions, the type of work has many similarities.

The National Income and Wealth Division, under the Associate Director for National Economic Accounts, has primary responsibility for the national income and product accounts and for the wealth accounts of the United States. Specifically, the Division is responsible for estimating final private domestic expenditures in the U.S. economy -- consumer expenditures and business investment -- as well as business and personal income and the capital stock. (Other BEA divisions prepare other parts of the accounts, but the National Income and Wealth Division assembles the parts and ensures internal consistency of the accounts.)

The Division, headed by a Division Chief, is staffed by about forty-five economists, who are assisted by ten support staff (secretaries, program assistants, and statistical assistants). Several economists are skilled in computer programming and devote much of their time to computer systems applications. A few economists have doctorates; others have completed master's or bachelor's degrees.

Five primary units make up the Division: Office of the Division Chief, Income Branch, Consumption Branch, Investment Branch, and GDP by Industry Branch. The units consist of staff having similar responsibilities for estimating the major components of the national accounts. The largest unit, consisting of fifteen economists and three support staff, is the Income Branch. The Branch is subdivided into three sections: personal income (primarily, wages and salaries), business income (primarily, corporate profits and proprietors' income), and property income (primarily, interest income and rental income).

Typically, an economist working in the Branch is responsible for estimating a major component of income. This usually involves preparing estimates for that component monthly from a variety of government and private data sources. The work also entails developing new estimating procedures, investigating new sources of data, and maintaining documentation of methods and procedures. In carrying out all of these activities, both personal computers (PCs) and BEA's mainframe computer are used intensively. The expanding use of PCs has been especially noticeable as local area networks have been put in place. Another important aspect of the work, particularly when BEA releases estimates, involves interactions with the public -- answering questions about the estimates and providing background information related to the accounts. Finally, the economists in the Branch, along with others working on the accounts, share their expertise by conducting sessions as part of BEA's training program for national income accountants from around the world.

ESTIMATING A COMPONENT OF THE NATIONAL ACCOUNTS

To provide more substance, I turn now to the process we use to estimate the largest component of both national income and personal income -- wages and salaries. As with most other components, annual data form the "benchmarks" from which monthly estimates are extrapolated. The key source data for the annual estimates of wages and salaries for most industries and for state and local governments are tabulations from the Bureau of Labor Statistics (BLS) Unemployment Insurance (UI) program.(1) The information from this program is based on reports filed with state employment security agencies by employers subject to state unemployment insurance tax. The UI program covers about 95 percent of private nonfarm wages and salaries as well as state and local government wages and salaries. For industries not covered by the UI program, a variety of other data sources is used, e.g., information from other government agencies. In addition, BEA makes adjustments for nonreporting, underreporting, and for some tips not included in the UI data.

Given its need for a monthly indicator of wages and salaries on a timely basis, BEA uses a different source for the current monthly and quarterly estimates of wages and salaries by industry. Specifically, we prepare the current estimates by extrapolating the UI-based estimates using indicators constructed from data on employment, hours, and earnings from the BLS Current Employment Statistics (CES) program. This program consists of a monthly survey of about 350,000 nonagricultural establishments employing more than 40 million nonfarm wage and salary workers.

BEA obtains the CES data on the day of the BLS unemployment release -- usually the first Friday of the month following the reference month -- on diskettes. The data are then "uploaded" onto BEA's mainframe computer, and a number of programs are run that update the wage and salary database, calculate the indicator series, and extrapolate the wage and salary estimates by industry. Specifically, for manufacturing industries, wages are estimated separately from salaries. The indicator used for wages is the product of the number of production workers on the payroll, average weekly hours for which pay is received, and average hourly earnings (including premium pay for overtime work). The indicator used for salaries is the product of the number of supervisory, clerical, and other nonproduction workers, and straight-time hourly earnings (i.e., earnings excluding overtime) of production workers in that industry.(2) For most nonmanufacturing industries, the indicator used for wages and salaries is the product of total employment, average hourly earnings, and average weekly hours.(3)

The computer programs also generate analytical tables that show the month-to-month changes in wages and salaries by industry and, perhaps more important, the "contributions" to those changes from the separate effects of month-to-month changes in employment, hours, and earnings. Because the CES data cover the pay period that includes the twelfth of the month, if this period is not representative of the entire month, because of strikes, unusual bonuses, severe weather conditions, holidays, etc., BEA may adjust the data based on other information.

For example, the wages and salaries in a given industry may exhibit a significant month-to-month drop because of a drop in average weekly hours. In some cases, the cause may be an unusual event, e.g., in March 1993, a severe east coast storm occurred at the tail end of the survey period; hence the survey results were not representative of the entire month, and BEA made adjustments to account for this. In other cases, the drop may be questionable and conflict with other evidence. BEA may then consult with BLS, and if there are no explanations for the pattern, or if we think the figures are likely to be revised, we may adjust the data.

The analysis that goes into the BEA adjustments to source data, such as those from BLS, is perhaps the most interesting and difficult aspect of working on the national accounts. Two more examples will highlight this. In 1992, Hurricane Andrew struck Florida during the last week of August, and consequently the BLS survey data for August did not reflect the hurricane's impact. BEA economists recognized that the hurricane could have a significant impact on wages and salaries, but no hard data were available to develop an estimate. Nevertheless, by examining media accounts, obtaining data from Florida officials, and analyzing demographic data for the region, we pieced together an estimate to adjust wages and salaries for the impact of work interruptions caused by the hurricane.

More recently, we estimated the impact on wages and salaries of accelerated bonus payments in the securities industry. We knew from discussions with industry sources that typically bonuses in this industry are paid in January, based on profits earned in the preceding calendar year. However, evidence from newspaper accounts indicated that some of these bonuses were accelerated into December 1992. Because the BLS source data do not capture these types of bonuses, we used various means, including examining historical data and contacting firms in the industry, to adjust for the impact of the accelerated bonuses on wages and salaries.

REVIEWING AND RELEASING THE ESTIMATES

When we complete the wage and salary estimates for the reference month, we prepare a "package" that includes detailed estimates by industry, movements of related series (such as the Current Population Survey data), and the impact of any BEA adjustments that were made to the BLS data. This package is submitted for review about two weeks following receipt of the BLS data, e.g., we submitted the February 1993 package for review on March 17. The reviewers are senior economists from BEA's National Income and Wealth Division and Government Division.(4)

At a review meeting, those attending evaluate the package and raise questions.(5) Usually, the discussion centers on the impact of special factors, e.g., strikes, hurricanes, bonuses, or holidays, that occurred during the reference month and the corresponding adjustments that were made to account for these factors or for other anomalies in the BLS data. However, the review may also consider the latest tabulations of the benchmark UI data for past quarters and how well the extrapolators have tracked them, as well as other related indicators, such as tax collections data from the Treasury Department or movements in the Labor Department's Employment Cost Index. In addition, depending on the month, revised estimates for two to four of the preceding months (based on revised BLS data) are presented, although the revisions are seldom significant for this component of national income. Once all the monthly estimates are finalized, they are aggregated into quarters and combined with estimates for other components into the overall submission for the GDP quarterly estimates.(6)

The complete GDP package is reviewed by senior officials of the Bureau in a "lock-up" (literally behind locked doors for security reasons) the day before the GDP quarterly estimate is scheduled for release. (In this case, the final fourth quarter 1992 GDP estimate was released March 26.) The focus in the review of GDP is a quarter and the months that comprise that quarter. When the estimate for the first and second months of the following quarter are available for personal income and outlays, the focus is also on those estimates.

Each quarter of GDP is estimated in three successive months as revised and additional source data become available. The corresponding estimates (and releases) are designated "advance," "preliminary," and "final."(7) During the review of the advance estimate, particular attention is given to GDP components for which data for the quarter are incomplete. Occasionally, the review results in additional adjustments to the estimates, which are incorporated before their release. During the review of the preliminary and final estimates, attention shifts slightly to focus on revisions to the advance and preliminary estimates, respectively, and the causes of those revisions, e.g., more complete source data.

Once the estimate is finalized, the GDP news release is completed, and a copy is hand-delivered after 5:00 P.M. on the day before the release to the Council of Economic Advisers for transmittal to the President.

While the GDP lock-up is taking place, the Chief of the Income Branch assembles the material for the Personal Income and Outlays news release, which includes information on monthly consumer spending and is published on the first working day following the GDP release. (Because of the intervening weekend, Personal Income and Outlays for February 1993 was released March 29).(8) This release is also prepared with strict attention to security, but not in a formal lock-up. The challenge in writing the release is to explain both qualitatively and quantitatively how special factors affect the month-to-month changes in personal income and its components. The goal is to present a clear picture of the underlying trend in income by removing the "noise" caused by short-term phenomena.

On the next day, the day of the GDP release, the Personal Income and Outlays release continues through the review process until it is approved by the Director. Once approved, a copy is hand-delivered, usually late in the afternoon the day before the release, to the Council of Economic Advisers for transmittal to the President.

On the morning of each release, several briefings take place. Policy officials at the Commerce Department are briefed and, when the GDP is released, a staff briefing at BEA is conducted by a senior economist to present highlights and important factors underlying the estimate. The staff briefing is particularly helpful in providing background information to the economists who interact with the public on the telephone. It should be stressed that, aside from receiving the release at its official release time, this is the first time the staff is informed of the estimate of GDP. Until then, the underlying figures are shared among staff only on a "need to know" basis.

Dissemination also takes place in other forms. Within minutes of their official release, BEA makes the estimates available electronically through the Commerce Department's Economic Bulletin Board.(9) Recorded telephone messages also summarize key estimates. Most of the estimates are also available on computer tape and on diskettes. Finally, details of the estimates appear in the Survey of Current Business, the monthly journal of the Bureau of Economic Analysis.

CONCLUSION

Working on the national accounts is a challenging experience. It is exciting to see the results of your work on nightly news reports and in newspaper headlines. At the same time, you are always aware of the sensitive nature of the work and the serious responsibility for providing the best available information to both the public and private sectors so that sound economic policies can be developed.

FOOTNOTES

1 Quarterly UI tabulations from BLS are obtained by BEA approximately six months following the end of a given quarter, e.g., the data for the fourth quarter of 1992 will be available in June 1993 and will enable us to bench-mark our estimates for the year 1992.

2 Under this procedure, average weekly hours for which salaried workers are paid are assumed to remain constant; straight-time hourly earnings of wage earners and hourly earnings of salaried workers are assumed to change by the same percentage during a year. During annual revisions, the UI tabulations of total wages and salaries are divided between wages and salaries using payroll data from the Census Bureau's Annual Survey of Manufacturers.

3 For the construction industry, the series used for wages and salaries is the product of total employment and average hourly earnings; the average work week is held constant. For the wages and salaries of other special cases in nonmanufacturing, a variety of data sources is used: For farm, data from the Department of Agriculture; for domestic workers in private households, data from the Current Population Survey together with a BEA estimate of average earnings; for federal civilians, data from the Office of Personnel Management; for the military, data from the Department of Defense; and for state and local governments, employment data from the BLS CES program together with data from the BLS Employment Cost Index.

4 The Government Division, another Division under the Associate Director for National Economic Accounts, plays a large role in developing the GDP estimates and is responsible for most government-sector estimates.

5 Similar review meetings are held for evaluating all the major components of GDP.

6 Because GDP is actually measured in two independent ways (by final expenditures for the goods and services produced in the economy and by the income that originates in the production of those goods and services), strictly speaking, the quarterly wage and salary estimates are combined with the other "income" components and evaluated along side the quarterly estimates for the "expenditure" components.

7 Although the estimate is designated as "final," BEA also carries out annual revisions each summer that cover the months and quarters of the most recent calendar year and the two preceding years, and we carry out comprehensive revisions at about five-year intervals that are more extensive and cover the complete historical series.

8 Because the bulk of personal income is derived from current production and because personal income estimates for the first two months of each quarter are available before the corresponding quarterly GDP estimates are complete, monthly personal income is used widely as an early indicator of economic activity for the quarter.

9 In one case, we transmit detailed data available at the time of the GDP release to BLS for inclusion in their estimates of U.S. productivity. Thus, the flow of information has gone full circle: BLS provides vital source data for BEA's estimates, and BEA, in turn, provides BLS with critical information for their estimates.

* Eugene Seskin is Chief of the Income Branch, National Income and Wealth Division, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC.
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Author:Seskin, Eugene P.
Publication:Business Economics
Date:Jul 1, 1993
Words:2900
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